Dear Reader,
Welcome to our Personal Insolvency update.
In this update we cover a number of areas which are very topical given the circa 100,000 loans that have been sold in recent months to Vulture funds by AIB, PTSB and Ulster bank. The sale of bad loans to Vulture/Investment funds will continue to be made by the main banks over the next 12 to 24 months.
These so called ‘bad loans’ mostly affect people who due to the economic and financial crash 10 years ago are not able to pay their debts in full.
Many of the ‘vulture fund’ cases that have been referred to me in recent months could have entered the insolvency process 5 years ago rather than the debtors having to face into availing of the personal insolvency legislation now to resolve their debts. In most cases the bank would have made a better financial return through the debtor availing of the personal insolvency legislation rather than selling on the debt to a vulture fund at a large discount.
We have included some recent appeal cases that were approved by the insolvency courts as examples of the work we do every day to help people to resolve their debts and stay in their homes.
I have also included an update on the statistics which are issued quarterly by the ISI. The number of arrangements is still quite low in my opinion, but it is increasing every month.
To help those with debt worries seek professional advice the ISI have recently launched a local poster campaign to advise people of the ‘free’ PIP financial advice consultation service which is called ‘Abhaile’. As the poster states ‘90% of those who seek the protection of the court through the personal insolvency legislation retain their home’ whilst also resolving their other debts. This is a statement that I can confirm from dealing with hundreds of cases over the last number of years.
I have also included an update on the most recent ISI statistics report for Q2 2018. The number of licenced Personal Insolvency Practitioners (PIP’s) has continued to decline from the peak number of 146 in June 2015 to 109 in June 2018. This number will continue to fall as this has become a niche area with less than 30/40 of the PIPs included on the ISI register actively operating and up-to-date with the legislation. This means it is even more important to get the right advice from the right PIP advisor.
We hope you will find the update useful and if you have any queries don't hesitate to contact the Personal Insolvency Department by email at info@quintas.ie or call 021 4641400.
The following is a listing of the topics we are covering in this update:
Awareness campaign from the ISI
Case Summary 1 – Successful 115A Appeal to the High Court
Case Summary 2 - Successful 115A Appeal to the Circuit Court
Case Summary 3 – Bankruptcy client application
Update on ISI Statistics Report to Q2 2018
The idea behind the campaign is that it speaks to those who are afraid to ask for help or who don’t know that help is there for them and it tells them where they can get the right advice. The feedback I get from the majority of my meetings with those in debt is that they know they have a problem they just don’t know how to solve it.
Basically, this means that if you are worried about losing your home the government will pay for a free consultation with a specialist PIP advisor who will tell you in simple terms what the options are to resolve your debts and stay in your home.
The ISI have asked for these posters to be displayed within the community to advertise the ISI debt resolution process and to also advise people of the ‘free’ PIP financial advice consultation service which is called ‘Abhaile’.
Below is a sample of the poster that you should hopefully see within your community.
These are links that you should review if you are in debt. Alternatively, please contact me on the phone number or email address below.
Successful PIA Court Appeal Stories
A PIA is a personal insolvency arrangement that allows a debtor and their creditors resolve their debts over a 6 year period. In cases where a PIA has not been approved by the majority of creditors a debtor can make an appeal to the insolvency court to ask the Judge to consider, review and approve their proposal.
The stories we have included here are actual cases that have recently been approved by an insolvency judge in both the High Court and the Circuit Court.
For the purposes of confidentiality, we have changed the names and amounts involved and we have not referred to any specific creditors.
Case Summary 1 – Successful 115A Appeal to the High Court
Name Mr Joe Smith
Dependants Spouse and 4 children under the age of 15
Total debts € 15m
Type of Arrangement Accelerated PIA
Term 12 months
Net Dividend € 25,000
% Return to Creditors 0.1%
Summary of case
The debtor’s total debt included all types of debts and various types of creditors. Debts included family home mortgage debt, commercial property debts, residual debts on investments properties, credit card debt, overdrafts, credit union debt, personal guarantees on failed businesses, revenue debt and judgment mortgage registered on his family home.
The debtor and his spouse both worked under the PAYE system. They have 4 young children and they had equity in their family home. The market value of their home was € 350,000 and the loan related to same was € 280,000. Based on affordability the arrears on this loan were capitalised and the term on the loan was extended. There was a judgment mortgage on the family home from another bank in the amount of € 2m.
The balance of the debts related mainly to previous commercial and property investment debts including a substantial personal guarantee signed with several other individuals.
The debtor had ongoing legal action and judgement proceedings including the threatened repossession of his family home.
The PIA as presented was in line with the personal insolvency legislation. In all cases the debtor must offer the maximum of their assets and income towards the arrangement.
In this case the projected dividends over the 6-year PIA term was € 13.5k. Due to ill health the debtor had offered a lump sum settlement of € 25k as part of an Accelerated PIA. This would mean that if accepted the debtor would exit his PIA within 12 months rather than the standard 6 year term. The lump sum settlement of € 25k was provided by family members.
The debtor received significant support from his creditors for this proposal but unfortunately he did not receive the majority required which is 65% support of the total debt due.
The debtor met the requirements for making an appeal and after 12 months of discussions the judge in the High Court approved his PIA proposal.
One interesting part of the proposal related to the treatment of the judgement mortgage on the family home. In cases where the family home is in negative equity any judgment debts secured on same are treated as normal unsecured debts. In this case there was positive equity in the family home of €70,000. This was discounted by 15% to € 59,500. This was then treated as a preferential debt. This debt was repaid over 12 years with an interest rate of 2% applied to same. The remainder of the judgement mortgage debt was then treated as an unsecured debt and written off as part of the PIA arrangement.
As part of the PIA, Revenue agreed to write off 50% of the tax arrears due with the other 50% repaid over the 6 year PIA term. Revenue did not apply interest to this preferential debt.
Once the terms of the PIA have been complied with the debtor will exit the personal insolvency process and his name will be removed from the ISI register. At that stage all his debts would be written off and the only debts remaining would relate to the family home loan. There would also be the preferential repayment to the creditor relating to the judgement mortgage and to Revenue.
Detailed financials on the dividends applicable to this arrangement.
Net Income € 4,000 p/m (Mr. Smith only)
RLE’s (Reasonable Living Expenses)
Family Allowance € 1,900 (65% split of the total allowances)
Mortgage € 700 (as above)
Childcare € 120 (as above)
Special Circumstances € 350 (as above)
Total RLE’s € 3,070
Other Preferential Payments
Revenue € 100
BOI € 443
(Judgment mortgage contribution)
PIP Fees € 200
Total Preferential Payments € 743
Net Dividend per month € 187
Total Dividend projected over 6 year PIA term = € 13,464
This compares to the increased net dividend proposed under the Accelerated PIA of €25,000
Case Summary 2 - Successful 115A Appeal to the Circuit Court
Name Mr John & Mrs Mary Jones
Dependants None
Total debts € 1m
Type of Arrangement Accelerated PIA
Term 6 months
Net Dividend € 23,000
% Return to Creditors 2.1%
Summary of case
The debtor’s total debt included a family home mortgage debt, debts associated with a failed business, residual debts on an investment’s property, credit card debt, overdraft, credit union debt, personal guarantees on failed business.
The debtor was self-employed, and his spouse was on social welfare disability allowance. They have 2 grown up children. The market value of their home was € 350,000 and the loan related to same was €355,000. Based on affordability the arrears on this loan were capitalised and the term on the loan was extended. The PPR loan provider also agreed to an interest rate concession from 6.5% to 3% variable to make the loan affordable. There was a judgment mortgage on the family home from another bank but as there was negative equity on the family home this judgement was treated as an unsecured debt as part of the PIA.
The debtors had ongoing legal action and judgement proceedings including the threatened repossession of their family home.
The PIA as presented was in line with the personal insolvency legislation. In all cases the debtors must offer the maximum of their assets and income towards the arrangement.
In this case the projected dividends over the 6 year PIA term was € Nil. This meant that the debtors were ineligible for a PIA. As an alternative a debtor can propose an Accelerated PIA where a lump sum amount is offered as part of the arrangement. The timeline for the payment of the lump sum in this case was 6 months. This lump sum payment was provided by their children. Effectively the debtors were living below the reasonable living expenses to prioritize their family home repayments.
In my experience the RLE’s applied in a personal insolvency arrangement are 30%/40% less than those that would normally apply, and which would give an individual a normal standard of living.
Without the support of family members for the lump sum amount under the Accelerated PIA the debtors only recourse to resolve their debts would be bankruptcy. It is likely that they would lose their family home in bankruptcy. From a creditor’s perspective the return under the PIA is substantially better than what they would receive in bankruptcy.
The debtors received significant support from their creditors for this proposal but unfortunately, they did not receive the majority required which is 65% support of the total debt due.
The debtor met the requirements for making an appeal and after 18 months of discussions the judge in the Circuit Court approved their PIA proposal.
Once the terms of the PIA have been complied with the debtors will exit the personal insolvency process and their names will be removed from the ISI register. At that stage all their debts would be written off and the only debts remaining would relate to the family home loan.
Detailed financials on the dividends applicable to this arrangement.
Net Income (both debtors) € 3,000 p/m
RLE’s (Reasonable Living Expenses)
Family Allowance € 1,500
Mortgage € 2,000
Childcare € 0
Special Circumstances € 125
Total RLE’s € 3,625
Other Preferential Payments None
Net Dividend per month (€ 625) this is a deficit of income less allowances
Total Dividend projected over 6 year PIA term = € Nil
This compares to the increased net dividend proposed under the Accelerated PIA of €23,000
Case Summary 3 – Successful Bankruptcy client application
Name Mr Fred Williams (Referred to as debtor/bankrupt)
Dependants Spouse and 3 children, 2 in secondary and 1 in primary
Total debts €527,000
Type of Arrangement Bankruptcy
Term 1 year
In this scenario the debtor who was adjudicated bankrupt got to keep his family home, he got to retain his pension, he got to keep his car, given that it was worth c.€4,000, he got to keep the remainder of his possessions which were valued under €2,000 and as there was no surplus income after Reasonable Living Expenses, he was not deemed eligible to make an income payment for distribution as a dividend to his creditors. After 1 year he was discharged from bankruptcy. So how did this happen…….
Summary of case
The debtor’s total debts included the family home mortgage debt of €425,000, Revenue debt of €62,000 and unsecured debt of €40,000, composed of credit card debt, overdraft debt and credit union debt.
The debtor and his spouse both worked under the PAYE system. They have 3 children and their family home was in negative equity. The market value of their home was € 350,000 and the family mortgage balance outstanding was € 425,000. Revenue, being a preferential creditor, had also placed a judgment mortgage on the family home in the amount of €62,000.
The debtor could not make his monthly debt repayments as and when they fell due.
After assessing his financial position his financial circumstances did not lend themselves to any of the possible debt solutions available under the personal insolvency legislation, other than bankruptcy. Before considering an application for bankruptcy all alternative solutions to bankruptcy which are contained in the Personal Insolvency Act 2012 must be explored. He did not qualify for a Debt Relief Notice as his level of debt exceeded €35,000. He did not qualify for a Debt Settlement Arrangement as his debt consisted of secured debt, as well as unsecured debt. He did not qualify for a Personal Insolvency Arrangement (PIA) due a shortfall in income which made him ineligible to apply for a PIA as his monthly income less expenditure did not generate a dividend to creditors.
Net Income € 2,010.05 p/m (Mr. Williams only)
RLE’s (Reasonable Living Expenses)
Family Allowance € 1,346.72 (55% split of the total allowances with his wife based on household net income)
Mortgage € 595.83 (as above)
Childcare € 90.00 (as above)
Special Circumstances € 192.50 (as above)
Total RLE’s € 2,225.05
Net Dividend per month (€ 215) this is a deficit of income less allowances
As the Reasonable Living Expenses expenditure was € 2,225.05p/m and the monthly net income for Fred is €2,010.05 p/m, and not taking into account his other preferential and unsecured creditor debt commitments, this left a deficit of -€215 p/m. Therefore, there was no dividend available for distribution to creditors.
I provided a PIP letter to the debtor setting out his options in writing and prepared an Insolvency Assessment Report. The debtor made the tough decision to make an application for bankruptcy. I then proceeded to make the bankruptcy application on his behalf and attended the High Court application with the debtor on the day he was adjudicated bankrupt.
The main consequences of Bankruptcy are:
- All unsecured debt is written off;
- Property and possessions transfers to the Official Assignee (except for essential assets up to a value of €6,000);
- Any surplus income (income less reasonable living expenses) must be contributed towards debts for up to 3 years;
- If seeking credit above €650, a person must disclose that they are bankrupt;
- Discharged from bankruptcy is normally after 1 year. However, this term could be shorter if settlement with creditors is reached but it could also be extended if a person does not fully cooperate with the process.
Income Payment Order
During the bankruptcy process, the ownership of the bankrupt’s property and possessions transfers to the Official Assignee in Bankruptcy to be sold by him for the benefit of creditors. Any debtor declared bankrupt is entitled to have a reasonable standard of living as set out under the ISI model. This includes food, clothing, education, healthcare and a modest allowance for savings. As the debtor had no surplus income left over after what is defined as a reasonable standard of living, the Official Assignee confirmed that the funds were not available to generate a divided to creditors. Generally, where there is a surplus in income after expenditure, a bankrupt must contribute that remaining surplus income to the Official Assignee for a period of up to 3 years and they will then distribute it to creditors. This is known as an ‘Income Payment Order’.
Family Home
The bankrupt’s interest/share in the family home transferred to the Official Assignee. While there is a possibility of losing your family home, you should not assume so in bankruptcy. In this scenario, the bankrupt’s spouse bought out the interest of the bankrupt and the legal interest was then transferred over to the spouse so the debtor got to keep his family home. In addition, as the family home was in negative equity, which means its market value was less than any outstanding mortgage on it, there was no immediate reason for the Official Assignee to sell.
Pension
Importantly, the bankrupt’s sizeable pension was not transferred to the Official Assignee; most pension arrangements will not be transferred to the Official Assignee, unless they are accessible during the period of the bankruptcy term.
Exit from bankruptcy
After 1 year the debtor was discharged from bankruptcy and all of his debts were written off. He is now solvent and can start a fresh financial clean slate and is able to regain some financial independence.
For years people believed that making an application for bankruptcy was a last resort before total financial ruin, and as such, was a humiliating process, silently battling the burden of overwhelming debt, one to be kept secret from their nearest and dearest. But thankfully all that is changing. Bankruptcy is no longer something to be ashamed of, but is a viable, workable option which can secure your financial future, give you peace of mind and put you on the path to solvency.
ISI STATISTICS Q2 2018
The ISI published its statistical report covering the first 6 months of 2018 (Q2).
Commenting on the statistical report, Mr. Lorcan O’Connor, Director of the ISI, said
“In comparison to the last quarter, applications are marginally down following strong growth in recent quarters on the back of Abhaile (the Government's free mortgage arrears support scheme, which includes free Personal Insolvency Practitioner consultations for insolvent debtors). The number of Protective Certificates and approved Arrangements are up 19% and 15% respectively.
The number of debtors securing Personal Insolvency Arrangements (the solution that returns debtors to solvency while keeping them in their home in over 90% of cases), continues to rise.”
Mr. O’Connor encouraged anyone with serious debt issues to consult a Personal Insolvency Practitioner
This is a link to the ISI Statistics Q2 2018
Key statistics for Quarter 2 2018 (Compared to Q1)
- 2% decrease in new applications to 981 (these 981 cases involved a total debt of € 680m),
- 19% increase in Protective Certificates to 548;
- 15% increase in Arrangements Approved to 344;
- 16% decrease in bankruptcy cases to 163 (these 163 cases involved a total debt of € 153m).
Key Statistics since the Insolvency legislation was enacted in 2013
- 13,405 applications for a Protective Certificate made to the ISI. 10,385 of these related to a PIA,
- 7,032 Protective Certificate issued by the courts. 5,841 of these PC’s related to a PIA,
- 4,672 Arrangements have been approved. 2,632 of these arrangements related to a PIA.
What does this mean to those with debt worries
- The number of bankruptcies has and will continue to fall, since the peak of 526 adjudications in 2016. This is due to those with debt concerns seeking the protection of the insolvency legislation as an alternative to bankruptcy. This also corelates with the launch of the Abhaile Scheme which is the Free Debt Advisory programme funded by the government whereby those in debt get to seek the advice of a PIP for free.
- 90% of those in mortgage arrears get to stay in their family home through the assistance of a PIP,
- The number of licenced Personal Insolvency Practitioners (PIP’s) has continued to decline from the peak number of 146 in June 2015 to 109 in June 2018. This number will continue to fall as this has become a niche area with less than one third of those 109 PIPs on the register actively operating and up to date with the legislation. This means it is even more important to get the right advice from the right PIP advisor.
Yours sincerely
Mark Ryan, CPA,
Personal Insolvency Practitioner (PIP),
Director, Quintas
Email mark.ryan@quintas.ie
Tel: 021 4641400
Mark Ryan is authorised by the Insolvency Service of Ireland to carry on practice as a personal insolvency practitioner.
Mark Ryan has been operating as a PIP since the inception of the Personal Insolvency legislation in 2012. With years of experience in negotiating debt restructures, personal insolvency arrangements and dealing with bankruptcy applications our team can advise you on the best course of action.
